Strategic Risk

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Definition

Strategic Risk (also Strategy Risk) denotes the risk arising from forward looking activities that modify the business plan of the firm (significant changes to policies, products, targeted market segments, acquisitions or any other business building activities) which may incur investment costs but below expected returns

Nature of the risk

The availability of strategic "options" forms substantial part of the intangible value (franchise value) of the firm, described also under the banner of Real Options. The selection of timing and manner of exercise of such options rests with the firm's management.

Strategic initiatives can be either offensive (competitive) or defensive in nature, aiming to expand into an new area or to protect an existing franchise

The success or not of strategic initiatives will depend:

  • The timeliness and quality of the pursued projects
  • The ability of the firm to execute
  • The competitive enviroment
  • The wider political and economic enviroment

Reputation Risk is a related but distinct risk as it arises from potential firm vulnerabilities with clients / other stakeholders irrespective of any new projects pursued

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